The results of the study of the effect of nanoparticles in the shell of iron oxide Fe2O3, which when injected into the melt and heated up to melt temperature is converted into oxide Fe3O4, on the microstructure of hardened and tempered steel 25GSL and its properties. It is shown that in modified steel martensite crystals thickness is reduced compared to the original steel in average 1.9 times after the quenching, tempered martensite crystal length after tempering hardened steel at 200oC - 3 times, the plate cementite length in troostite after tempering hardened steel at 450 оС – 1,4 times, the carbide length of after tempering of steel at 550 оС – 1,6 times. It has been found that modification of iron nanoparticles in a shell of Fe3O4 oxide leads to dispersion of the subgrain structure (regions of coherent scattering) and to the decrease of the crystal lattice parameters of solid solutions. The mechanism of nanoparticle influence on the reduction of the crystal lattice parameters of solid solutions, which is to accelerate the diffusion of interstitial atoms of the elements into the zones of high stress on the nanoparticles surface, is proposed. It is determined that the optimal improvement mode of the modified steel is quenching at 900 °C and tempering at 550 °C. The yield, tensile strengths and toughness of the modified steel are 894 MPa, 993 MPa and 92 J/mm2, respectively, on 62, 41 and 14% higher than the original steel. The injection of iron nanoparticles in a refractory shell into the steel melt before crystallization predetermines the effective modification and enhancement of mechanical properties. Keywords: iron nanoparticles, structure, martensite, troostite, sorbite, carbides, stresses, phase transformations.